ST. JOHN’S SCHOOL OF LAW
LEGAL STUDIES RESEARCH PAPER SERIES
The FTAIA and Claims by Foreign Plaintiffs
Under State Law
Paper # 12-0015, September 20, 2012
Edward D. Cavanagh
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The FTAIA and Claims by Foreign Plaintiffs Under State Law
Abstract
In F. Hoffman LaRoche Ltd. v. Empagran S.A., 542 US 155 (2004), the Supreme Court
limited access to American courts by foreign plaintiffs suing under the Sherman Act based on
foreign transactions. Jurisdiction over foreign antitrust claims is governed by the Foreign Trade
Antitrust Improvements Act (“FTAIA”). However, rather than parsing this opaque and poorly
drafted statute, the Court drew on the doctrine of prescriptive comity and held that where a
statute is vague, it should be construed narrowly so as not to interfere with the prerogatives of
co-sovereigns. Alternatively, the Court concluded that if the conduct in question would have
been beyond the reach of the Sherman Act prior to the enactment of FTAIA, it would not be
cognizable under the FTAA because that statute was designed to limit—not expand—jurisdiction
over foreign claims. The Court found that there were no pre-FTAIA cases to support
jurisdiction.
On remand, the D.C. Circuit ruled that even if foreign plaintiffs could show that “but for”
participation of U.S. firms in the conspiracy, they would not have been injured, their claims
would still be barred. The FTAIA contemplates that (1) the illegal foreign have a “direct,
substantial and reasonably foreseeable effect” on U.S. commerce; and (2) such adverse effect on
foreign commerce gives rise to claims by foreign plaintiffs. Incidental or “but for” linkage does
not suffice; proximate cause is the standard.
Moreover, foreign claims based on foreign transactions are also barred under the
doctrines of standing and antitrust injury. Antitrust courts have traditionally denied standing to
firms that were neither competitors nor consumers in the U.S. market. Similarly, the doctrine of
antitrust injury limits the universe of antitrust plaintiffs to those who have suffered injury of the
kind that the antitrust laws are met to protect against and that flows from that which makes the
conduct unlawful. The U.S. antitrust laws were not meant to protect plaintiffs who were not
participants in the U.S. market. Empagran may not eliminate antitrust actions by foreign
purchasers, but the decision is a major hurdle to their successful prosecution.
Antitrust, Vol. 26, No. 1, Fall 2011. © 2011 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be
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The FTAIA and Claims by Foreign Plaintiffs
Under State Law
BY EDWARD D. CAVANAGH
I
N E M PAG R A N , 1 T H E S U P R E M E C O U RT
construed the Foreign Trade Antitrust Improvements
Act 2 (FTAIA) to severely limit the extraterritorial reach
of the Sherman Act. In the wake of Empagran and the
D.C. Circuit’s subsequent ruling on remand in that case,3
foreign plaintiffs asserting claims under U.S. antitrust laws for
injuries based on transactions consummated abroad have
been largely shut out of federal courts. Foreign plaintiffs,
however, have not abandoned their efforts to obtain relief in
American courts for anticompetitive acts committed in the
international arena. Rather, they have turned to claims under
various state laws, including state antitrust laws, state unfair
trade practice laws, and common law relief under theories of
unjust enrichment and restitution.
This article analyzes the viability of these state law claims
and concludes that state law remedies are likely to be unavailable for injuries based on transactions consummated abroad,
for the same reasons the FTAIA bars antitrust claims under
federal law. Additionally, these state law claims are barred by
the Supremacy Clause of the U.S. Constitution, the Foreign
Commerce Clause, the Due Process Clause, and the doctrine
of prescriptive comity.
Background
Historically, U.S. courts have been hesitant to apply American
antitrust laws to conduct occurring outside of the country. In
American Banana Co. v. United Fruit Co., the Supreme Court
ruled that the Sherman Act must be “confined in its operation
and effect to the territorial limits over which the lawmaker has
general and legitimate power.”4 As American traders became
increasingly involved in the international arena, courts began
to relax the hard-line view of American Banana. In Alcoa, the
Second Circuit held that the Sherman Act does proscribe
extraterritorial acts that are “intended to affect imports [into
the United States] and did affect them.” 5 At the same time,
Alcoa made clear that “[w]e should not impute to Congress an
intent to punish all whom its courts can catch, for conduct
which has no consequences within the United States.” 6 Still,
Edward D. Cavanagh is Professor of Law, St. John’s University School of
Law. He gratefully acknowledges the conceptual guidance of Professors
Anthony Colangelo and Margaret McGuinness. The author served as a consultant to the defense in the Flat Panel Antitrust Litigation.
the court made no attempt to identify the point at which foreign acts were qualitatively and quantitatively sufficient to
affect domestic commerce to confer jurisdiction on U.S.
courts.
Congress enacted the FTAIA in 1982 to clarify the reach
of the Sherman Act in matters involving foreign commerce.
The statute, however, was inartfully drafted and led to more
confusion than clarity among courts and litigants. The
Supreme Court in Empagran granted certiorari to resolve a
dispute among the circuits on construction of the FTAIA.7
The D.C. Circuit had concluded that the FTAIA allowed
subject matter jurisdiction over claims by plaintiffs located in
the Ukraine, Australia, Ecuador, and Panama, each of whom
alleged that they had suffered injuries from a global price-fixing cartel when they bought vitamins for delivery outside of
the United States. The Supreme Court vacated, holding that
the FTAIA bars the exercise of subject matter jurisdiction over
Sherman Act claims by foreign plaintiffs claiming illegal conduct that “significantly and adversely affects both customers
outside the United States and customers within the United
States” if “the adverse foreign effect is independent of any
adverse domestic effect,” that is, if “the conduct’s domestic
effects did not help to bring about that foreign injury.” 8
The Court articulated a two-pronged rationale for its
interpretation of the FTAIA. First, under principles of prescriptive comity, ambiguous statutes—and the FTAIA is, at
the very least, ambiguous—should generally be interpreted so
as to “avoid unreasonable interference with the sovereign
authority of other nations.” 9 The Court concluded that the
Sherman Act may not supersede a foreign nation’s determination of how best to protect its citizens in cases where foreign conduct causes foreign injury independent of domestic
injury and that foreign injury alone gives rise to foreign
plaintiffs’ claims.10 The Court further observed, citing amici
filings by foreign governments, that allowing foreign plaintiffs to proceed with treble damage claims under these circumstances “would unjustifiably permit their citizens to
bypass their own less generous remedial schemes, thereby
upsetting a balance of competing considerations that their
own domestic antitrust laws embody.” 11
Second, the Court found plaintiffs’ argument for expansive construction of the FTAIA unpersuasive. As a threshold
matter, the FTAIA was meant to limit—not to expand—the
reach of the Sherman Act in matters involving foreign comF A L L
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State law, however, may not be an effective vehicle
for foreign plaintiffs to escape the limits of the
FTAIA. State law claims by foreign plaintiffs are likely
to face the same restrictions that the FTAIA places
on such claims under federal law.
merce. Moreover, the Court found no case decided prior to
the enactment of the FTAIA that would have upheld the
exercise of jurisdiction over similar foreign claims. 12
Although the Court acknowledged that plaintiffs’ argument
favoring jurisdiction presented “the more natural reading of
the statutory language,” considerations of comity and history
made clear that plaintiffs’ reading “is not consistent with the
FTAIA’s basic intent.” 13 Instead, the Court adopted the narrower reading championed by defendants because “[t]hat
reading furthers the statute’s basic purposes, it properly
reflects considerations of comity, and it is consistent with
Sherman Act history.” 14 The Court emphasized that its holding “assumed that the anticompetitive conduct here independently caused foreign injury; that is, the conduct’s
domestic effects did not help to bring about that foreign
injury.” 15
On remand, the plaintiffs argued that their injury was
not unrelated to the anticompetitive effects of the cartel on
U.S. commerce, urging that but for defendants’ price-fixing
activities in the United States, the international cartel would
have collapsed. The plaintiffs maintained that, given the fact
that vitamins are fungible and readily transportable, without
U.S. participation in the conspiracy, foreign purchasers would
have bought vitamins in the United States at competitive
prices, instead of dealing with the cartel at supracompetitive
prices. By incorporating the U.S market, the cartel cut off
that avenue of arbitrage. Accordingly, the plaintiffs argued
that the domestic effect of the cartel caused the plaintiffs’ foreign injury.
The D.C. Circuit disagreed. The court did acknowledge
that the plaintiffs had painted a plausible scenario that but for
supracompetitive prices in the United States resulting from
cartel activities in the United States, they would not have
been injured.16 Nevertheless, the court held that “ ‘but-for’
causation between the domestic effects and the foreign injury
claim is simply not sufficient to bring anticompetitive conduct within the FTAIA exception.” 17 Rather, the statutory
formulation calls for “a direct causal relationship, that is,
proximate causation,” between domestic effects and foreign
injury, a standard that is not satisfied by establishing a mere
“but-for ‘nexus.’” 18 The proximate cause standard under the
FTAIA has proven to be a formidable barrier to foreign plaintiffs who seek to bring antitrust suits under U.S. law in
American courts.
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The Shift to State Law Claims
The restrictive holdings in Empagran and its progeny have led
foreign plaintiffs to seek relief in state court under state law,
invoking state antitrust laws, state unfair trade practices acts,
and common law remedies for unjust enrichment or restitution.19 State law, however, may not be an effective vehicle for
foreign plaintiffs to escape the limits of the FTAIA. State law
claims by foreign plaintiffs are likely to face the same restrictions that the FTAIA places on such claims under federal
law.20 In addition, state law claims seeking redress for foreignbased injuries would run afoul of the Supremacy Clause, the
Foreign Commerce Clause, and the Due Process Clause of
the Fourteenth Amendment, as well as principles of prescriptive comity.
State Antitrust and Unfair Competition Claims
In construing the FTAIA, the Court in Empagran did not
question the power of Congress to enact legislation with an
extraterritorial reach. Nevertheless, as the Court observed
subsequently in Morrison,21 “It is a long-standing principle of
American law ‘that legislation of Congress, unless a contrary
intent appears, is meant to apply only within the territorial
jurisdiction of the United States.’ “ This presumption against
extraterritoriality “rests on the perception that Congress ordinarily legislates with respect to domestic, not foreign matters,” and “unless there is the affirmative intention of the
Congress clearly expressed to give a statute extraterritorial
effect [a court] must presume it is primarily concerned with
domestic conditions.” 22 Where “a statute gives no clear indication of an extraterritorial application, it has none.” 23 This
same canon of construction applies with equal force to state
statutes.24
As a threshold matter, it would be illogical to suggest that
a state’s power to legislate extraterritorially exceeds that of the
national government. But, even if state powers were coextensive with those of the federal government, no state
antitrust or unfair trade practices statute by its terms purports
to apply outside of the United States. Accordingly, the limiting rationale of Morrison applies equally to state law.
State Antitrust Laws. To succeed in bringing state law
claims that would be barred under federal antitrust law by the
FTAIA, plaintiffs must convince the courts that the extraterritorial reach of state antitrust statutes is broader than that
of the Sherman Act. Any attempt to do so, however, would
be a nonstarter. The states, through harmonization statutes 25
and judicial decisions,26 have directed their courts to follow
federal antitrust laws and the federal judiciary’s construction
of those laws in interpreting their respective state statutes.
This is not to say that harmonization statutes require states
to move in lock step with federal antitrust law. Many states
have gone their own way by enacting Illinois Brick repealers
to permit indirect purchaser claims,27 and the Supreme Court
has upheld those statutes.28 Those statutes suggest that state
legislatures know how to react when they believe that a
Supreme Court decision would, if applied to the state
antitrust scheme, unduly limit the protections of state law.
More recently, notwithstanding the Supreme Court’s decision
in Leegin,29 some states continue to treat resale price maintenance as per se illegal.30 The post-Leegin cases suggest that at
least some states view their antitrust statutes as tools that
can be used to extend greater protection than federal law,
even given the general principle of deference to construction
by the federal courts.
Given the fact that states have diverged from federal antitrust law, it is especially noteworthy that no state has enacted
the state law equivalent of the FTAIA, nor has any state court
or state legislature decreed that its antitrust laws would have
broader extraterritorial reach than that permitted by federal
law in the three decades since the enactment of the FTAIA.
This inaction by the courts and legislatures serves to underscore the fact that there is no basis for extraterritorial jurisdiction under state law that would be more expansive than
such jurisdiction under federal law. Even if state statutes on
their face provided for extraterritorial reach (which they do
not), it would be anomalous if such statutes were construed
to have greater extraterritorial reach than the Sherman Act.31
Moreover, there is a well-developed body of case law that
limits the application of a state’s antitrust statute where the
conduct occurs outside that state.32 Relying on Empagran,
the Supreme Court of Texas held that Texas law may not
supplant the judgment of the legislatures of other states
about how best to protect consumers from anticompetitive
conduct and injury in those states.33 The court concluded
that under the principles of federalism, “One state’s legislature cannot dictate to other states what can and cannot be
tolerated in economic competition. This is ‘so obviously the
necessary result’ that it needs no supporting authority.” 34
Unfair Competition Statutes. Courts are likely to
find that the foreign reach of state-based claims for unfair
competition is similarly limited. State unfair competition
statutes are generally modeled after the Federal Trade Commission Act (FTCA), and states generally look to federal
precedent construing the FTCA in interpreting their own
statutes.35 At the time Congress enacted the FTAIA to clarify the foreign reach of the Sherman Act, it also amended the
FTCA and adopted the same “direct, substantial and reasonably foreseeable” test that is set forth in the FTAIA, thereby creating a single legal standard against which to measure
jurisdiction under U.S. competition law in matters involving
foreign commerce.36 As is the case with the state response to
the FTAIA, no state has amended its “little FTC Act” to create a state statute at odds with the jurisdictional reach of the
FTCA. Accordingly, to the extent that the Federal Trade
Commission would be barred from bringing an unfair competition claim under the FTCA, it is likely that analogous
claims would be barred by state law.
Animal Science
The federal courts decisions, in applying the FTAIA to foreign
antitrust claims, have been somewhat obscure in distin-
guishing between dismissal based on subject matter jurisdiction and dismissals based on the merits. This imprecision has
relevance for foreign claims based on state law. Although
Empagran did not specifically address the issue, most lower
courts have treated the matter as one of subject matter jurisdiction.37 Recently, however, the Third Circuit in Animal
Science held that, in light of the Supreme Court’s decision in
Morrison that the question of the extraterritorial reach of
Rule 10-b(5) claims under the securities laws goes to the
merits, the issue of the extraterritorial reach of the antitrust
laws also goes to the merits.38
If the Third Circuit is correct in its analysis, then application of state harmonization statutes is likely to cause state
courts to conclude that state claims are unavailable where the
FTAIA would bar federal claims. On the other hand, if the
issue is simply one of subject matter jurisdiction, then the fact
that Congress has stripped the federal courts of federal jurisdiction does not necessarily address whether state legislatures
might authorize state courts to hear foreign claims. The issue
then becomes whether the Constitution limits the power of
state law to govern foreign-based claims. As argued below, the
Constitution does in fact limit state court jurisdiction over
such claims, even if the states themselves might wish to assert
such jurisdiction.
Constitutional Constraints
The Constitution does not specifically address the issue of
whether, and the extent to which, states may legislate extraterritorially. Nevertheless, there are underlying themes in the
Constitution suggesting that the power of states to legislate
beyond their borders is severely circumscribed. These themes
can be found in the Supremacy Clause, the Foreign Commerce Clause, and the Due Process Clause of the Fourteenth
Amendment.
A review of the legislative history of the FTAIA demonstrates that Congress had several aims in enacting the statute.
First, Congress intended to clarify the law by eliminating
“ambiguity in the precise legal standard to be employed in
determining whether American antitrust law is to be applied
to a particular transaction” and by providing “a clear benchmark . . . for businessmen, attorneys and judges as well as
trading partners” in order to “promote certainty in assessing
the applicability of American antitrust law to international
business transactions and proposed transactions.” 39 In enacting the FTAIA, Congress enabled the United States to speak
with one voice with respect to the interaction between
American antitrust law and foreign commerce. The Supreme
Court has recognized that “[f ]oreign commerce is pre-eminently a matter of national concern” and that the United
States must therefore speak with a unified voice on foreign
commerce issues.40
Second, Congress sought to ensure that companies involved in foreign commerce could readily ascertain whether
American antitrust law applied to their conduct. Congress
meant to make clear that the Sherman Act did not govern
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activities of U.S. companies operating abroad, “however anticompetitive, as long as those arrangements adversely affect
only foreign markets.” 41 Third, Congress intended to foster
international comity by accommodating antitrust schemes of
other sovereign nations, recognizing that respect for foreign
regimes would serve to ease “foreign animosity toward U.S.
antitrust enforcement.” 42 Applying state law, whether antitrust law, unfair competition law, or the court-made doctrines
of restitution or unjust enrichment, to foreign claims in the
face of the foregoing purposes underlying the congressional
enactment of the FTAIA, would run afoul of the Supremacy
Clause, the Foreign Commerce Clause, and the Due Process
Clause of the U.S. Constitution.
Supremacy Clause. As a general proposition, federal
law preempts state law where: (1) Congress expressly preempts the operation of state law; (2) federal law occupies the
field of intended state regulation; or (3) there is conflict
between federal and state provisions. It is well established that
the Sherman Act was not intended to occupy the field of
antitrust regulation and, accordingly, state antitrust laws are
not expressly preempted. Nor are state antitrust laws as a general matter impliedly preempted. The Supremacy Clause,
however, bars invocation of state law where, “under the circumstances of [a] particular case, [the challenged state law]
stands as an obstacle to the accomplishment and execution of
the full purposes and objectives of Congress.” 43 The question
of what constitutes a “sufficient obstacle is a matter of judgment, to be informed by examining the federal statute as a
whole and identifying its purpose and intended effects . . . .” 44
Significantly, courts broadly construe the preemptive effect of
federal law and restrict construction of concurrent state power
to the narrowest limits when a state law touches upon foreign
affairs or international relations.45 Additionally, the Supremacy
Clause has been held to bar the application of state antitrust
law where state statutes would interfere with treatment of the
nationally organized professional team sport of baseball.46
The application of state antitrust laws to foreign claims
beyond the bounds set by the FTAIA and Empagran would
likely introduce uncertainty and confusion in the law and
frustrate the Congressional intent that the United States speak
with one voice on the issue of American jurisdiction over foreign commerce. Similarly, sanctioning state regulation of foreign transactions would make it more difficult for American
companies to assess the legality of the foreign conduct under
American laws. In addition, allowing state laws to reach foreign claims that the FTAIA placed beyond the purview of the
Sherman Act would create a fundamental conflict with the
statutory goals set forth above.
Finally, if the states were given free rein to entertain matters involving foreign commerce that are beyond the bounds
set by the FTAIA for federal antitrust law, the explicit purpose
of Congress to accommodate the antitrust schemes of other
nations would be hopelessly compromised. The Court in
Empagran concluded that, in Sherman Act cases involving
international transactions, any attempt to analyze comity con4 6
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cerns on a case-by-case basis would be too complicated to
prove workable. The Empagran I Court explained:
Courts would have to examine how foreign law, compared
with American law, treats not only price fixing but also, say,
information-sharing agreements, patent-licensing, price conditions, territorial product resale limitations, and various
forms of joint venture, in respect to both primary conduct
and remedy. The legally and economically technical nature
of that enterprise means lengthier proceedings, appeals, and
more nature of that enterprise means lengthier proceedings,
appeals and more proceedings—to the point where procedural costs and delays could themselves threaten interference with a foreign nation’s ability to maintain the integrity
of its own antitrust enforcement system. Even in this relatively simple price-fixing case, for example, competing briefs
tell us (1) that potential treble-damages liability would help
enforce widespread anti-price-fixing norms (through added
deterrence) and (2) the opposite, namely that such liability
would hinder antitrust enforcement (by reducing incentives
to enter amnesty programs). How could a court seriously
interested in resolving so empirical a matter—a matter potentially related to impact on foreign interests—do so simply
and expeditiously? 47
The complexities identified by the Supreme Court in
Empagran involve potential conflicts between only the
Sherman Act and foreign law. Those complexities would be
multiplied significantly if courts were directed instead to
analyze potential conflicts between foreign law and laws of
perhaps 30 or 40 states. Evaluation of state statutes on a
case-by-case basis would undermine the stated goals of
Empagran I to promote comity. Under these circumstances,
assertion of state authority over foreign conduct must be
preempted. Otherwise, state law would stand as an obstacle
to achieving the goals of the FTAIA.
These very concerns prompted one court to rule that the
state antitrust and consumer protection claims at issue were
in conflict with federal policies set forth in the FTAIA. The
court agreed with the defendant’s contention that the exercise
of jurisdiction over state law claims would run afoul of the
Supremacy Clause.48 In so holding, the court found that
“Congress had spoken under the FTAIA” and it was therefore
“persuaded that Congress’ intent would be subverted if state
antitrust laws were interpreted to reach conduct which the
federal law could not.” 49
To avoid conflict with the Supremacy Clause, the state
statute must be construed so as to go no further than the
FTAIA in regulating foreign commerce. That is precisely
what a California state court held in Amarel v. Connell.50
The plaintiffs in Amarel were independent rice producers
who sued agricultural cooperatives under the Cartwright Act,
California’s antitrust and consumer protection law, and its
unfair competition laws, alleging conspiracy to monopolize
the sale of California paddy rice, including the foreign export
market. The plaintiffs initially alleged collusion between the
defendants to sell rice to the Republic of Korea. The trial
court granted a motion to dismiss, concluding that the allegations intruded into the exclusively federal sphere of foreign
commerce and foreign relations. Subsequently, the plaintiffs
filed an amended complaint in which their Cartwright Act
claims were free of any assertions involving foreign commerce and foreign relations. The trial court again dismissed
the complaint, but the appellate court reversed and upheld
the sufficiency of the Cartwright Act claims, the originally
offending allegations having been removed.51
In addition, the appellate court in Amarel upheld the
plaintiffs’ consumer protection and unfair competition law
claims.52 Amarel concluded that, although Congress had not
completely barred state regulation of foreign commerce, the
courts still must “square” the jurisdictional limits on the
Sherman Act under the FTAIA with the application of state
. . . par ticipants in foreign commerce, faced with
conflicting legal standards regarding the applicability
of federal law and a multitude of state statutes,
would face insur mountable difficulties in assessing
their potential liability under state or federal laws.
law to foreign conduct and thereby avoid conflict between
federal and state law. The court reasoned that the FTAIA creates “an ‘effects’ test for application of the state’s antitrust and
unfair competition laws . . .” and, because “the anticompetitive conduct in question has a direct, substantial and reasonably foreseeable effect within the state . . .” the foreign
claim was not preempted by the FTAIA.53
Foreign Commerce Clause. The Foreign Commerce
Clause gives Congress the sole power to regulate commerce
with foreign nations. The Supreme Court has acknowledged
the dominant federal interest in regulating foreign commerce
and has underscored the importance of uniformity in policies
regulating foreign commerce.54 The “special need for federal
uniformity” places additional constraints on the states when
acting in matters of foreign commerce.55 Were litigants permitted to circumvent the FTAIA’s limitations on foreign
claims and avail themselves of what they perceive as more liberal jurisdictional standards under state law, the goal of uniformity would be thwarted and it would be impossible for the
United States to speak with one voice on matters of potential antitrust liability under American law for claims relating
to injuries suffered outside of the United States. Equally
important, participants in foreign commerce, faced with conflicting legal standards regarding the applicability of federal
law and a multitude of state statutes, would face insurmountable difficulties in assessing their potential liability
under state or federal laws.
The Supreme Court’s decision in Japan Line is particularly instructive here. In that case, the Supreme Court held
that applying a California ad valorem tax provision to con-
tainers involved in international commerce violated the
Foreign Commerce Clause.56 As with the state antitrust and
consumer protection laws and common law claims discussed
here, the California tax statute did not discriminate between
domestic and foreign commerce. Rather it imposed a tax
on any property located in California on a particular date
each year. This scheme meant that foreign goods located in
California on that date were taxed even though they were
not destined for sale, distribution, or consumption in the
state. Noting that the United States had entered the Customs
Convention on Containers with other nations covering duties
on goods temporarily imported into member nations, the
Court found that the California statute impaired the ability
of the United States to speak with one voice and that the
statute was therefore preempted under the Foreign Commerce
clause:
A state tax on instrumentalities of foreign commerce may
frustrate the achievement of federal uniformity in several
ways. If the State imposes an apportioned tax, international
disputes over reconciling apportionment formulae may arise.
If a novel state tax creates an asymmetry in the international tax structure, foreign nations disadvantaged by the levy
may retaliate against American-owned instrumentalities present in their jurisdictions. Such retaliation of necessity would
be directed at American transportation equipment in general, not just that of the taxing State, so that the Nation as a
whole would suffer. If other States followed the taxing State’s
example, various instrumentalities of commerce could be
subjected to varying degrees of multiple taxation, a result that
would plainly prevent this Nation from “speaking with one
voice” in regulating foreign commerce.57
For these same reasons, the Court ruled that a more
detailed inquiry would be necessary where states seek to tax
instrumentalities of foreign, rather than of interstate, commerce. Specifically, the courts must consider whether imposition of state taxes creates a significant risk of international
multiple taxation and whether the tax would bar the federal
government from “speaking with one voice when regulating
commercial relations with foreign governments.” 58 Similarly,
in the antitrust arena, courts must consider whether liability
under state law for injuries suffered wholly outside the United
States would create significant risks of multiple liability and
would undermine uniform policies that Congress sought to
create.
Under Japan Line and its progeny, where a state law undermines a clear federal policy to speak with one voice on a matter affecting foreign commerce, applying that law beyond
what is permitted by the federal policy violates the Foreign
Commerce Clause.
Due Process. The Due Process Clause of the Fourteenth
Amendment restricts extraterritorial application of state law
in two related but analytically distinct ways: (1) it provides
inherent constitutional limitations on the permissible scope
of a state’s substantive law, i.e., a state’s legislative jurisdiction; 59 and (2) it provides constitutional limitations on a
state’s choice of law rules.60
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Legislative Jurisdiction. The Supreme Court has long
recognized that due process bars a state from regulating
activities outside of its borders where the state has only a
slight or casual nexus with those out-of-state activities.61
Due process confines a state’s legislative sovereign authority
over persons, property, and activities to “its territorial limits, and its laws have no operation in other states except as
allowed by those states or by comity.” 62 A state “may not
impose economic sanctions on violators of its laws with the
intent of changing the [wrongdoer’s] lawful conduct in other
states.” 63
Similarly, in assessing the limits of the states’ exercise of
long-arm jurisdiction, the Supreme Court has held that “the
Due Process Clause ‘does not contemplate that a state may
make binding a judgment in personam against an individual
or corporate defendant with which the state has no contacts,
ties or relations.’” 64 Where affiliating ties with the forum are
lacking, the Due Process Clause, acting as an instrument of
interstate federalism, may sometimes act to divest the state of
its power to render a valid judgment over the parties, “[e]ven
if the defendant would suffer minimal or no inconvenience
from being forced to litigate before the tribunals of another
state; even if the forum state has a strong interest in applying
its law to the controversy; even if the forum state is the most
convenient location for the litigation.” 65 Only where the
defendant “purposefully avails itself of the privilege of conducting activities within the forum State” is the defendant
subject to personal jurisdiction there.66 The Court further
observed that “we have never accepted the proposition that
state lines are irrelevant for jurisdictional purposes nor could
we and remain faithful to the principles of interstate federalism embodied in the Constitution.” 67
The Due Process Clause is designed to allow orderly administration of the laws and provide “a degree of predictability to the legal system that allows potential defendants to
structure their primary conduct with some minimum assurance as to where that conduct will or will not render them
liable to suit.” 68 These jurisdictional principles supply a useful framework for analyzing the extraterritorial reach of a
state’s substantive law. Just as due process protects a nonresident from unfair use of a state long-arm statute, due
process also protects an individual or entity from the consequences of extraterritorial application of state law where such
application would offend the sovereign interests of sister
states.69 Only where the transaction in question has a meaningful nexus with the forum state and only where the defendant is fairly on notice that a given state’s law will apply does
due process allow for extraterritorial application of a state
statute.70
The federal courts have long held that the Sherman Act
applies to foreign conduct causing domestic injury. Nevertheless, Empagran made clear that, even where foreign conduct causes domestic injury, a foreign plaintiff may not recover under the Sherman Act for claims based on foreign
transactions unless the adverse effect on domestic commerce
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S T O R I E S
is the proximate cause of a plaintiff ’s foreign injury. On the
one hand, due process would not bar an Illinois state court
hearing a price-fixing claim from applying forum law to conduct by an Illinois corporation headquartered in Chicago
where significant conspiratorial acts took place in Illinois. On
the other hand, due process concerns would arise where a foreign plaintiff seeks the protection of Illinois law for injuries
suffered from transactions occurring outside the United
States, absent proof that the anticompetitive effects in Illinois
proximately caused plaintiff ’s foreign injury, because it would
be unreasonable in those circumstances for Illinois antitrust
law to supplant the antitrust schemes of foreign governments
or sister states.71 Moreover, the Supreme Court recently
underscored the inherent limitations on the exercise of judicial power imposed by the Due Process clause and made
clear that merely putting goods in the stream of commerce,
even with the expectation that they may be used or consumed in the forum state, is not enough for the forum to
exercise jurisdiction over a foreign defendant under the Due
Process Clause.72
Conflict of Laws. The Due Process Clause also serves to
restrict a state court having jurisdiction over claims of plaintiffs whose principal contacts are with other states (or countries) from applying forum law to the case. In Phillips
Petroleum Co. v. Shutts,73 the Supreme Court held that the
issue of jurisdiction over the parties “is entirely distinct from
the constitutional limitations on choice of law.” To apply its
law, a forum “must have a ‘significant contact or significant
aggregation of contacts’ to the claims asserted . . . contacts
creating state interests’ in order to ensure that the choice of
[forum] law is not arbitrary or unfair.” 74 In determining fairness, a paramount concern of the courts is the expectations
of the parties. A state “may not abrogate the rights of parties
beyond its borders having no relation to anything done or to
be done within them.” 75 In so holding, the Supreme Court
categorically rejected the lower court’s decision that “the law
of the forum should be applied unless compelling reasons
exist for applying a different law.” 76 In assessing the sufficiency of the nexus between the foreign conduct and the
forum, the courts must ascertain whether the forum state has
significant contact or aggregation of contacts to the claims
before it to create state interests that ensure that the choice
of forum law “is not arbitrary or unfair.” 77
However, the fact that a forum has sufficient nexus with
the claims for its law to apply does not necessarily mean, as
a matter of conflict of laws, that forum law must apply. In
deciding whether to apply forum law or the law of another
jurisdiction, courts typically look to section 6 of the Restatement (Second) of Conflict of Laws, which sets forth a variety
of factors for the courts to consider.78 Foremost among them
is “the relevant policies of [i]nterested states and the relative
interests of those states in the determination of the particular issue.” 79 Only after assessing competing concerns can a
decision on applicable law be made. Forum law does not
apply automatically.
Comity
In Empagran, the Supreme Court held that principles of prescriptive comity required that the FTAIA be interpreted so as
to preclude exercise of Sherman Act jurisdiction where foreign conduct causes independent foreign harm that alone
gives rise to a plaintiff ’s claim. Prescriptive comity provides
that domestic statutes should be construed so as to avoid
unreasonable interference with the sovereign authority of
foreign nations.
The prescriptive comity principle relied on by the Supreme
Court in Empagran applies equally to state law claims for reasons already discussed. First, Empagran is a decision by the
highest court interpreting the reach of the Sherman Act and
therefore should be authoritative with respect to state antitrust statutes under harmonizing statutes and case law
referred to above. Second, it would be anomalous for a court
to find that the jurisdiction of state courts in matters of commerce exceeded that of federal courts.80 Third, the case law,
although sparse, confirms that the jurisdictional reach of
state antitrust laws and state consumer protection statutes
cannot exceed that of the Sherman Act.81
Common Law Claims
Common law actions, such as claims for restitution and
unjust enrichment, by foreign plaintiffs based on foreign
transactions face even steeper hurdles than statutory claims.
Even assuming that a court would have subject matter jurisdiction over these claims, due process concerns would bar
application of forum law where the nexus between the defendant’s unlawful acts and the forum is attenuated.
Additionally, the common law claims face the same hurdles that the state antitrust claims and unfair trade practices
claims face under the Supremacy Clause, the Foreign Commerce Clause, and the Due Process Clause.82 To permit the
common law actions to go forward would stand as an obstacle to the ability of the United States to speak with one voice
in matters of international commerce. Moreover, allowing
suits based on restitution or unjust enrichment could complicate the conduct of international commerce because
traders would have no simple way of assessing their potential
liability under various different state-based unjust enrichment or restitution regimens. Equally important, comity
concerns counsel against permitting common law claims to
trump remedies provided by foreign law for injuries suffered
outside the United States.
Under federal law, as discussed above, there is a presumption against the courts giving extraterritorial effect to acts of
Congress. A principal rationale for this presumption is to
avoid fomenting unintended discord with foreign nations
by extending U.S. law abroad by judicial decision. If laws are
to have extraterritorial effect, that decision should come from
the legislature and, as stated by the Supreme Court in
Morrison, should require a “clear” or “affirmative” expression
of extraterritoriality in order to extend U.S. law to foreign
activity.83 In truth, this suggests that courts have less (and cer-
tainly no more) power than the legislature to extend U.S. law
outside the country. This principle of construction applies
equally to the state law context.84 In the absence of affiliating contacts with the forum state that would make it fair and
reasonable for the court to exercise jurisdiction, a state court
may not entertain common law claims involving foreign
conduct.
Conclusion
State law claims by foreign plaintiffs based on foreign transactions are limited by the reach of their applicable federal
counterparts. It is both incongruous and illogical to suggest
that state law can trump federal law in matters of foreign
commerce. Moreover, the Constitution clearly delimits state
regulation of foreign commerce. In short, satate law cannot
provide an end run around the FTAIA. 䡵
1
F. Hoffman-La Roche Ltd. v. Empagran S.A., 542 U.S. 155 (2004)
(Empagran I).
2
15 U.S.C. § 6a.
3
Empagran S.A. v. F. Hoffman-LaRoche, Ltd., 417 F.3d 1267 (D.C. Cir. 2005),
cert. denied, 546 U.S. 1092 (2006) (Empagran II).
4
213 U.S. 347, 357 (1909).
5
United States v. Aluminum Co. of Am., 148 F.2d 416, 444 (2d Cir. 1945).
6
Id. at 443.
7
Empagran I, 542 U.S. at 160–61. Compare Den Norske Stats Oljeselskap
As v. HeereMac Vof, 241 F.3d 420, 427 (5th Cir. 2001) (exception does not
apply where foreign injury independent of domestic harm), with Kruman v.
Christie’s Int’l; PLC, 284 F.3d 384, 400 (2d Cir. 2002) (exception does apply
even where foreign injury independent).
8
Empagran I, 542 U.S. at 164, 175.
9
Id. at 164–69.
10
Id. at 165.
11
Id.
12
Id. at 169–70, 173.
13
Id. at 174.
14
Id. at 175.
15
Id.
16
Empagran II, 417 F.3d at 1270–71.
17
Id. at 1271.
18
Id.
19
See, e.g., In re Intel Corp. Microprocessor Litig., 476 F. Supp. 2d 452 (D. Del.
2007); In re Chocolate Confectionary Antitrust Litig., 602 F. Supp. 2d 538
(M.D. Pa. 2009).
20
In re Static Random Access Memory (SRAM) Antitrust Litig., No. 07-md01819 CW, 2010 WL 5477313, at *4 (N.D. Cal. Dec. 31, 2010).
21
Morrison v. National Austl. Bank Ltd., 130 S. Ct. 2869, 2877 (2010) (citation omitted).
22
Id.
23
Id. at 2878.
24
See Coca-Cola Co. v. Harmar Bottling Co., 218 S.W. 3d 671, 682 n.13 (Tex.
Sup. Ct. 2006); Diamond Multimedia Sys., Inc. v. Superior Ct., 19 Cal. 4th
1036, 1059 (1991); Kennerson v. Thames Towboat Co., 89 Conn. 367, 374
(1915).
25
See ABA S ECTION OF A NTITRUST L AW, A NTITRUST L AW D EVELOPMENTS 624, 624
n.11 (6th ed. 2007) [hereinafter ALD VI].
F A L L
2 0 1 1
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C O V E R
26
Id. at 624 n.12. See also Michael A. Lindsay, Overview of State RPM,
A NTITRUST S OURCE , http://www.antitrustsource.com [References].
27
See id. at 639 n.118.
28
California v. ARC Am. Corp., 490 U.S. 93 (1989).
29
Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 551 U.S. 877 (2007).
30
See Jay Himes, New York’s Prohibition of Vertical Price-Fixing, N.Y. L.J., Jan.
29, 2008, at 4 (“Both the language of the statute and its legislative history make clear that an RPM provision is per se violation of 340 (1) of The
Donnelly Act.”)
31
The ‘In’ Porters, S. A. v. Hanes Printables, Inc. 663 F. Supp. 494, 501 n.8
(M.D.N.C. 1987).
32
See ALD VI, supra note 25, at 625–27.
33
Coca-Cola Co., 218 S.W. 3d at 681–82.
34
Id.
35
See Intel, 476 F. Supp. 2d at 457.
36
37
38
15 U.S.C. § 45(a)(3)(i); Intel, 476 F. Supp. 2d at 457–58; see also United
Phosphorus, Ltd. v. Angus Chem. Co., No. 94C 2078, 1994 WL 577246,
at *4 (N.D. Ill. Oct. 18, 1994) (purpose of the FTAIA was “to amend the
Sherman Act and the Federal Trade Commission Act to create a unitary
statutory test to determine whether American antitrust jurisdiction exists
over certain international transactions.”).
E.g., United Phosphorus, Ltd. v. Angus Chem. Co., 322 F.3d 942, 948–51
(7th Cir. 2003); Den Norske Stats Oljeselskap As v. HeereMac Vof, 241 F.3d
420, 428 (5th Cir. 2001); Carpet Group Int’l v. Oriental Rug Importers
Ass’n, 227 F.3d 62, 69–73 (3d Cir. 2000).
See Animal Sci. Prods., Inc. v. China Minmetals Corps., 654 F.3d 462,
2011 WL 3606995, at *2 (3d Cir. Aug. 17, 2011).
S T O R I E S
60
Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 821-22 (1985).
61
Bigelow v. Virginia, 421 U.S. 809, 822-24 (1975) (barring Virginia legislature from regulating activities occurring in New York); Nielsen v. Oregon, 212
U.S. 315, 321 (1909) (holding that Oregon cannot prosecute and punish
acts done in the State of Washington); Bonaparte v. Tax Court 104 U.S. 592,
594 (1991) (“No State can legislate except with reference to its own jurisdiction”); see also Hartford Accident & Indemnity Co., 292 U.S. at 149; Dick,
281 U.S. at 407.
62
Stover v. O’Connell Assocs. , 84 F.3d 132, 136 (4th Cir. 1996).
63
BMW of N. Am., Inc. v. Gore, 517 U.S. 559, 572–73 (1996).
64
World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 294 (1980)
(citing International Shoe Co. v. Washington, 326 U.S. 310, 319 (1945)).
65
World-Wide Volkswagen, 444 U.S. at 294 (citing Hanson v. Denckla, 357
U.S. 235, 251, 254 (1958)).
66
Id. at 297.
67
Id. at 293.
68
Id. at 297.
69
Gore, 517 U.S. at 572.
70
Id. at 572–73.
71
Coca-Cola Co., 218 S.W. 3d at 681–82 (“[W]hy should Texas law supplant
Arkansas, Louisiana, or Oklahoma law about how best to protect consumers
from anit-competitive conduct in those states? . . . There is no good answer
. . . .”).
72
J. McIntyre Mach., Ltd. v. Nicastro, 131 S. Ct. 2780, 2790–91 (2011).
73
472 U.S. 797 (1985).
74
Id. at 821–22.
39
H.R. R EP. N O. 97-686 at 1–3, 5, 9–10 (1982).
75
Id. at 822.
40
Japan Line, Ltd. v. County of Los Angeles, 441 U.S. 434, 448 (1979).
76
Id. at 823.
41
Empagran I, 542 U.S. at 161(citing H.R. R EP. 97-686 at 1–3, 9–10 (1982)).
77
Id. at 821–22.
42
Foreign Trade Antitrust Improvements Act: Hearing on H.R. 2326 Before the
Subcomm. on Monopolies and Commercial Law of the H. Comm. on the
Judiciary, 97th Cong. (1981).
78
Section 6 of the Restatement (Second) of Conflict of Laws provides:
43
Crosby v. Nat’l Foreign Trade Council, 530 U.S. 363, 373 (2000); Hines v.
Davidowitz, 312 U.S. 52, 67 (1941).
44
Crosby, 530 U.S. at 373.
45
Hines, 312 U.S. at 68.
46
Major League Baseball v. Crist, 331 F.3d 1177, 1186 (11th Cir. 2003)
(“Federal law establishes a universal exemption [for baseball] in the name
of uniformity”); see also Northern Sec. Co. v. United States, 193 U.S. 197,
345 (190) (no state may give a corporation “authority to restrain interstate
or international commerce against the will of the nation as lawfully
expressed by Congress”).
47
Empagran, 542 U.S. at 168–69 (internal citations omitted).
48
Intel, 476 F. Supp. 2d at 457.
49
Id.
50
202 Cal. App. 3d 137 (1988).
51
52
§6. Choice-Of-Law Principles
(1) A court, subject to constitutional restrictions, will follow a statutory directive of its own state on choice of law.
(2) When there is no such directive, the factors relevant to the choice of the
applicable rule of law include
(a) the needs of the interstate and international systems,
(b) the relevant policies of the forum,
(c) the relevant policies of other interested states and the relative
interests of those states in the determination of the particular issue,
(d) the protection of justified expectations,
(e) the basic policies underlying the particular field of law,
(f) certainty, predictability and uniformity of result, and
(g) ease in the determination and application of the law to be applied.
79
See Budget Rent-A-Car Sys., Inc. v. Chappell, 407 F. 3d 166, 177 (3d Cir.
2005).
Id. at 144–45.
80
See The ‘In’ Porters, S.A., 663 F. Supp. at 501 n.8.
Id. at 150.
81
See Amarel, 202 Cal. App. 3d at 141.
53
Id. at 149–50; see also Global Reinsurance Corp.–U.S. Branch v. Equitas
Ltd., 921 N.Y.S.2d 1, 9–10 (1st Dept. 2011) (applying Empagran analysis
in Donnelly Act case and concluding that foreign conduct had a sufficiently
direct substantial and reasonably foreseeable effect on New York commerce to permit German entity to sue under New York law).
82
The fact such claims are rooted in case law rather than in Statutes does not
mitigate constitutional concerns. See Gore, 517 U.S. at n.17 (“State power
may be exercised as much by a jury’s application of a state rule of law in a
civil law suit as by a statute.”).
83
Morrison, 130 S. Ct. at 2877–82.
54
Japan Line, 441 U.S. at 449.
84
55
Barclays Bank PLC v. Franchise Tax Bd. of Cal., 512 U.S. 298, 311 (1994)
(citations omitted).
56
Japan Line, 441 U.S. at 437–38.
57
Id. at 450–51.
58
Id.
59
See Hartford Accident & Indemnity Co. v. Delta & Pine Land Co., 292 U.S.
143 (1934); Home Ins. Co. v. Dick, 281 U.S. 397 (1930).
See, e.g., Tattis v. Karthans 215 So.2d 685 (Miss. 1968) (insult spoken in
North Carolina not actionable under Mississippi law); Marmon v. Mustang
Aviation, Inc., 430 S. W. 2d 182 (Tex. 1968) (Texas wrongful death statute
offers no remedy for death occurring in Colorado]; Burns v. Rozen, 201
So.2d 629 (Fla. Dist. Ct. App. 1967) (Florida statute regulating method of
catching food fish applied only to state territorial waters); Dur-Ite Co. v.
Industrial Comm’n, 394 Ill. 338, 68 N.E.2d 717 (Ill. 1946) (Illinois worker’s
compensation law does not encompass persons employed outside the
state).
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